How to explain risk

Humans are naturally risk-averse. Our biology and our culture tell us to avoid it wherever and whenever possible. Nobel Prize-winning psychologist Daniel Kahneman sums it up best, “For most people, the fear of losing $100 is more intense than the hope of gaining $150.”

But what if we were to tell you that there is risk in being risk-averse. Kind of a mind-bender right?

When explaining risk to your team, it’s helpful to describe it as a two sided coin: on one side there’s danger but on the other is opportunity.

Risk means you are doing something for a reason—that there is the potential for gain. So if there is no upside, then you can call it what it is: just plain danger.

When we hear companies talk about de-risking a project they aren’t just eliminating the hazards, they’re wiping out the opportunities they might create to do something bigger, bolder, and better.

Instead of focusing solely on minimizing losses, we encourage risk-management through moving fast and making small bets.

With just a few resources (mainly your team’s brainpower and a little research) you can dive into the presumptions, assumptions, and knowledge you have of all possible pitfalls beforehand. This will help your team to maximize the ups and minimize the downs.

Think about risk on a time continuum. Something that is conservative in the short term, may be risky in the long term (like say a 24-year-old investing solely in treasuries as a retirement plan). When you talk about risk, focus on “why” and “when” your opportunities may be worth the gamble.